Germany: EU supervisor must focus on biggest banks

Europe's planned single banking supervisor should focus only on the biggest institutions that pose the greatest risk to the financial system, a German government official insisted Thursday.

The new supervisory body, which will be anchored with the European Central Bank, cannot "practically supervise 6,000 banks with the same intensity," the official in Berlin said.

The 27-nation European Union hopes to introduce the legal framework for the so-called banking union by January but many issues remain unresolved, and the timeframe might prove to be overly optimistic.

Many EU governments want the European supervisor to oversee all banks, not only the few dozen most-important institutions, to avoid a two-class system that could disadvantage smaller banks controlled by national regulators.

Germany, which has many small saving banks, argues that such institutions do not pose a risk to the financial system and should better be left with national regulators, freeing the European supervisor to concentrate on the big players with the huge balance sheets.

The official, who briefed reporters on condition of anonymity in line with German government policy, acknowledged that the ongoing negotiations in the coming weeks "will be very intense."

One of the other thorny issues remains how to ensure that EU states that do not use the euro will have a say in the new regulator's decisions because their banks will be affected. The ten EU countries that don't use the euro do not have a seat at the ECB.

European finance ministers will again meet to discuss the banking union plans early next month. An agreement by the year's end is thought to be unlikely.